Tags: Durable | Goods | Orders | 6.1

Durable Goods Orders Up 6.1

Wednesday, 26 April 2006 12:00 AM

Orders for durable goods – products that are expected to last a year or more – swelled 6.1% in March. It was the biggest increase in orders since May 2005.

The durable goods release took the market by surprise as analysts were expecting a small 1.8% rise in orders. The announcement sent stocks flying in early trading. The durable goods number is a leading indicator of both consumer and business demand for equipment. 

Looking at the numbers, orders gained across the board – for machinery, computers, metals, electronic products, and even motor vehicles.

The largest boost to the headline number came from orders for commercial aircraft, which posted a 71.1% increase over last month. The AP reports that Boeing Co. captured 112 new orders for airplanes. Excluding the entire transportation sector, new orders were still up 2.8%, according to the AP.

The numbers also show that wartime buying was not behind the demand for durable goods. Excluding defense orders, new orders were up an astounding 12.1%. Taking away civilian aircraft orders, non-defense orders were still up 3%.

Unfilled orders increased 2.8% in March. Coupled with higher new orders, this shows that the manufacturing sector has a lot of projects in the pipeline – a sign of strength in the industry.

New home sales jumped 13.8% after declining in the two previous months. But if you look closely at the numbers, you'll see that the housing sector is still in trouble.

Year over year, sales are down 7.2%. Inventories are still high. Builder inventory is skyrocketing. And home prices are slipping.

The pace of sales is running at 1.21 million units, which is below the 2005 average of 1.28 million, according to Economy.com. They also report that first quarter home sales averaged 1.16 million units – 33% below fourth quarter 2005 on an annualized basis and the slowest quarter since fourth quarter 2003.

The amount of time it takes to sell a new home is 5.5 months, slightly lower than last month. But according to Economy.com, builder inventories climbed to new records in March. There were 555,000 new homes on the market in March – a record, says The Wall Street Journal.

Meanwhile, home prices are sliding. The median home price of $221,000 (seasonally adjusted) is 3% below what it was a year ago. Economy.com says that it's the first year over year decline since June 2003.

The average 30-year fixed mortgage rate jumped to 6.32% in March. Rising rates will most likely put a damper on new home buying in the coming months. Rising rates translate into higher payments for homebuyers.

And homes are already unaffordable. According to the National Association of Realtors, the affordability index is at a 15-year low, meaning that fewer and fewer people can afford to purchase a home right now.

The Mortgage Bankers Association today reported that mortgage demand decreased for the week ending April 21, even as rates dipped.

The overall index fell 3.7%, with mortgage purchases tumbling 4.4% and refinancings falling 2.4%. The purchase index is at its lowest level since November 2003, says the MBA.

The number of mortgage contracts issued has fallen dramatically in the past year. Compared to a year ago, mortgage purchases are 19% lower and refinancings are 27% lower, according to Economy.com.

Interest rates dipped slightly last week. The average contract rate for a 30-year fixed mortgage was 6.53% last week, down 3 basis points from the prior week. The one-year adjustable-rate mortgage, one of the more popular mortgage options, dipped four basis points to 5.96%.

However, rates are still high compared to a year ago. The 30-year fixed rate has climbed 78 basis points in a year, and the one-year adjustable is a huge 181 basis points higher, says Economy.com.

The decline in refinancings even as rates dip is an indication that the demand for refinancings has dried up. It could also point to slowing consumer demand (and slowing durable goods orders) since consumers have been using their refinancing cash to buy big-ticket items.

The purchase index is also worrisome as it indicates weakness in the home buying and could foreshadow a slowdown in construction.

Perhaps we may see some relief at the pumps in the coming weeks as inventories of gasoline and distillates fell less than expected. In addition, refinery utilization has picked up.

Gasoline inventories inched lower by 1.9 million barrels for the week ending April 21. But analysts expected a drop of 2.6 million barrels. Gas inventories are 5.6% below a year ago.

Distillate inventories fell by just 1 million barrels, a half million barrels less than what analysts were looking for. Distillate inventories are 10.6% higher than last year.

But the most encouraging information out of the oil and gas inventories was the refinery capacity utilization number. Low capacity utilization has been creating a bottleneck on gasoline production.

Last week, though, refineries increased their capacity utilization from 86.2% to 88.2%. This is the second week in a row that capacity utilization has increased, according to Economy.com.

Increasing capacity utilization is a good sign that refineries are coming back online after the Gulf Coast hurricanes and are ending their seasonal maintenance operations.

Crude oil inventories fell by 0.2 million barrels, slightly more than expected, but still remain well above average.

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Orders for durable goods - products that are expected to last a year or more - swelled 6.1% in March. It was the biggest increase in orders since May 2005. The durable goods release took the market by surprise as analysts were expecting a small 1.8% rise in orders. The...
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Wednesday, 26 April 2006 12:00 AM
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